None of the categories in which we operate are anywhere close to maturity even in categories which are highly penetrated there is a scope to improve the consumption or there is a scope to operate the consumer to higher order benefit so there is a massive clearly headroom to grow.ET Now | September 01, 2017, 12:26 IST

Demonetisation might have slowed down the rural economy but Sanjiv Mehta, CEO, HUL, is quite enthusiastic. He believes that there is massive headroom for FMCG companies in India to grow.

Here's an edited excerpt of his interview with ET Now where he talks about GST and competition of HUL with Patanjali.

ET Now: How life will change for India's biggest FMCG company after the GST roll out?

Sanjiv Mehta: We in Hindustan Unilever are big fans of GST and the reason is very simple. First it will bring about a level playing field. Second it should increase the government’s tax collection, more people should come into the tax net that should augur well for the economy and third very importantly, it will help us bring in much more efficiencies in the supply chain. So we are big fans of GST. Now coming to price I think Hindustan Unilever was one of the first companies to immediately pass on the benefit from both the output tax perspective as well as from the input tax perspective to the consumers. Yes, we were absolutely clear on that and we have been on record to state that and we were quick to implement it. We took a company view of the benefit and we have passed it on. Also I believe as a good corporate citizen it was very important for us that as far as all our major products are concerned, despite the fact that in some cases where the output taxes have gone up and the net incidence has gone up, we have still refrained from taking prices and that is what we have done and that is what we had also assured the finance minister that we will do in the first couple of months.

ET Now: We have seen somewhere around sub 4% volume growth. So do you think that is a new normal now and that a high single digits when it comes to volume growth is not a reality for the FMCG sector anymore?

Sanjiv Mehta: See I would not like to come to a conclusion that the growth cannot be higher but that is the reality today. We have to understand and certainly not only FMCG but even a big company like ours we cannot be immune to the macro environment around us. If we look at nearly two-third of a countrymen live in rural India and if the volume growth has to move up very clearly the consumption in rural India has to. There was two consecutive years of drought, the MSP increase was much lower in the past so consequently the rural growth which was earlier running at twice or thrice the national growth came down to more or less at the urban growth level which pull down the total FMCG market growth.

The headroom to grow in India is massive. None of the categories in which we operate are anywhere close to maturity even in categories which are highly penetrated there is a scope to improve the consumption or there is a scope to operate the consumer to higher order benefit so there is a massive clearly headroom to grow and as more money gets in to the hands of consumers you will find the consumption pattern of FMCG products move up.

ET Now: Would you attribute the dip in rural consumption to the government’s move for demonetisation. It has affected the rural economy. In fact commodity inflation is also back. So how would you strategise these issues and how would you go ahead with them?

Sanjiv Mehta: First let me clarify a few things post GST we have not hiked the prices in soaps we have reduced it. The other bit is slowdown in rural economy did not come after post demonetisation in fact it came in a few quarters before demonetisation. I am not in a position to bring out a clear causal relationship between demonetisation and its impact on the rural economy. We leave it for the economist to do but let us wait and see how in the next few months the economy picks up that would be a good indicator of whether there is a lag impact or not of the economic steps which have been taken by the government.

ET Now: About the herbal segment you have introduced, do you think the pricing of the product is competitive enough against product of Patanjali which has been doing very well in that sector for a while?

Sanjiv Mehta: See we observe our competitors but the obsession is with consumers, I am very pleased with Lever Ayush. We did a test marketing in the southern states for about six months and we met the benchmarks and now we have rolled it out across the country. It is great formulation, we have got the Ayurveda technology from Ayurveda pharmacy and the response that we are getting from consumers is absolutely heart warming.

As far as the pricing is concerned it is more at the middle of the pack and also you have to understand that pricing cannot be looked at in an absolute manner. You always look at it from a value perspective. We believe we have priced it right and it is not a product which is at a premium.

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